Shareholder Disputes Lawyers

When should you seek a lawyer regarding a shareholder dispute?

Shareholder disputes commonly arise when there are disagreements between shareholders, company directors or officers regarding the management of a company, shareholders’ rights, company finances or the direction of the business.

These disputes can significantly impact the operation and value of a company if the matters are not appropriately and strategically addressed.

You should seek legal advice when concerns arise, particularly where there are allegations of:

• Oppressive or unfair conduct;
• Breaches of directors’ duties;
• Exclusion from management or decision-making;
• Misuse of company funds or assets;
• Failure to comply with shareholders agreements.
• Financial exclusion and withholding dividends; or
• Denial of access to information.

If one of these issues apply to you, early intervention can often assist to preserve the commercial relationship and avoid lengthy litigation. For the full range of corporate legal services, see our corporate lawyers page.

What are your rights as a shareholder?

Your rights as a shareholder differ depending on whether the company is public or private.

In general, shareholders have the right to:

• Vote at company meetings;
• Request company meetings (known as a members’ meeting);
• Receive dividends; and
• Access certain company information and records.

For public companies:

• Rights are heavily regulated by the Corporations Act 2001 (Cth), Australian Securities and Investment Commission and the Australian Securities Exchange (for listed companies).
• Stricter protocols exist regarding voting. For example, a listed public company must allow broad shareholder proxy voting and an open annual general meeting.
  • Proxy vote: allows for the delegation of your voting power to a trusted representative.

For private companies:

• Shares cannot be sold to the general public as there is restricted trading. The directors or majority shareholders often hold discretion over the selling and transfer of shares.
• There are fewer regulatory requirements as private companies do not need to hold Annual General Meetings unless it is mandated in their constitution.
• Private companies have fewer disclosure obligations regarding transactions and financial reports. Whilst large proprietary limited companies must lodge financial reports, small proprietary limited companies do not need to unless, for example, shareholders direct them to.

What can be done and what can be achieved?

Breach of Directors’ Duties

Directors owe a range of statutory and fiduciary duties to the company and its shareholders under the Corporations Act 2001 (Cth).

The relevant provisions are sections 180-183 which impose duties on directors’ and officers’, such as the:

• Duty to exercise powers with reasonable care and diligence;
• Duty to exercise powers in good faith in the best interests of the company and for a proper purpose;
• Duty to not improperly use their position to gain an advantage or cause detriment to the company; and
• Duty to not improperly use information obtained through their position to gain an advantage or cause detriment to the company.

Further, in certain circumstances, breaches of the duty to act in good faith and for a proper purpose that arises out of recklessness or dishonesty can result in criminal liability (see section 184 of the Corporations Act 2001 (Cth)).

See Corporate Governance Lawyers for more information.

Oppressive Conduct Claims

A shareholder can initiate proceedings when there has been oppressive, unfairly prejudicial or unfairly discriminatory conduct against a member or members of the company.

Under section 232 of the Corporations Act 2001 (Cth), shareholders can apply to the Court where there has been conduct of a company’s affair that is:

• Oppressive;
• Unfairly prejudicial; or
• Unfairly discriminatory against a shareholder or group of shareholders.

Examples of matters where oppressive conduct may be present include:

• Excluding a shareholder from management;
• Financial exclusion and withholding dividends;
• Share dilution; and
• Denial of access to information.

There are remedies available to shareholders under section 233 of the Corporations Act 2001 (Cth), for example:

• The winding up of the company;
  • Under section 461 of the Corporations Act 2001 (Cth), the Court may order the winding up of a company. The Court will consider various factors but the decision rests on whether the Court is of the opinion that it would be just and equitable to do so.
• Appointment of a receiver;
• Share buy outs; and
• Modification or repeal of the company’s constitution.

Where shareholder disputes proceed to Supreme Court or Federal Court proceedings, our civil and commercial litigation lawyers act for both applicants and respondents.

Can a shareholder initiate proceedings on behalf of the company?

Legal proceedings can be brought on behalf of the company for the purpose of taking responsibility, known as a derivative action. An application can be made in accordance with section 237 to commence proceedings under section 236 on behalf of the company, which must be granted leave by the Court. The process is referred to as a Statutory Derivative Action which is the mechanism whereby persons can sue on a company’s behalf. A derivative action is used when a company is failing to take action against a legal claim that is available to them. Should this occur, shareholders and select officers can seek permission from the court to bring proceedings on behalf of the company.

What remedies are available?

As previously mentioned, a claim brought under section 232 of the Corporations Act 2001 (Cth) has remedies available under section 233.

Further, under section 1324 of the Corporations Act 2001 (Cth), the Court can grant an injunction on the terms that it deems appropriate.

Injunctions are commonly sought in order to:

• Prevent improper company transactions;
• Stop breaches of general duties by directors or officers;
• Preserve company assets; and
• Prevent shareholders from being improperly excluded.

What are ways to improve the relationship between shareholders’ and the company?

To minimise the risk of future shareholder disputes, a well-drafted shareholders agreement is essential. See our guide to shareholders agreements for the key provisions that protect all parties, including provisions that:

• Outlines the shareholders rights, responsibilities and rules regarding the management of the company; and
• Can assist in minimising disputes and provide provisions such as a predetermined dispute resolution procedure that comes into effect should a dispute arise.

Where the dispute involves an unincorporated partnership rather than a company, see our partnership disputes lawyers page.

Why choose Citilawyers?

Citilawyers understands the commercial and personal complexities that often arise within shareholder disputes. Our team provides strategic and practical advice that is aimed at protecting your interests.

We advise shareholders, directors and companies in relation to:

• Oppression claims;
• Breach of directors’ duties;
• Corporate governance issues;
• Urgent injunction applications; and
• Shareholder agreements.

Whether you are seeking to protect your rights as a shareholder or respond to allegations made against you, Citilawyers can assist you through every stage. Contact us online or call (02) 9233 7737.